Discount: indicates that the forward exchange rate is lower than the spot exchange rate. In direct quotation, discount means appreciation of local currency. On the contrary, under the indirect pricing method, the discount indicates the depreciation of the local currency. For example, in the spot foreign exchange market, the exchange rate of the US dollar against the German mark is 1: 1.7393, and the exchange rate of the US dollar against the German mark for three months is 1: 1.75. At this point, Mark is very attentive.
Extended data
The amount of discount can be expressed in terms of amount or points.
First of all, discount
If the price of GBP/USD is 1.5030/40. The exchange points are arranged in a way of large left and small right. The two-way interest rates for overnight borrowing of sterling are: 4.00% (deposit) and -4.25% (loan) respectively. The two-way interest rate of overnight dollar borrowing is: 2.25% (deposit) and -2.50% (loan). rule
1, buy GBP/USD. The exchange points calculated in the above example are-0.63;
2. The calculation method of selling GBP/USD is as follows:
1.5030× (2.25%-4.25% )×1day /360 days =-0.000083.
That is, the exchange point is -0.83.
Therefore, the overnight exchange point of GBP/USD is 0.83/0.63 basis points.
This is the professional usage of discount in the market.
Second, the premium.
If the price of USD/CHF is 1.66 10/20 (the order of exchange rate points is small on the left and big on the right). The three-month two-way US dollar interest rates are 2.25% and -2.50% respectively. The two-way interest rates of three-month Swiss francs are 4.75% and -5.00% respectively. rule
1. When selling dollars and buying Swiss francs, the overnight exchange point is calculated as follows:
1.6610× (4.75%-2.5% )×1day /360 days.
That is 0.58 basic points (pip).
4. When buying dollars and selling Swiss francs, the overnight exchange point is calculated as follows:
1.6620× (5.00%-2.25% )×1day /360 days =0.000 127.
That is 1.27 basic points (pip).
Therefore, the overnight exchange point of USD/CHF is 0.58/ 1.27 pips.
Third, the essence.
Historically, the mode of trade has been developing continuously. At first, it was a spot transaction of primary money and primary goods. Later, under the premise of the establishment of the credit system, forward spot trading appeared, and 1870 began cotton futures trading.
At present, there is no futures market and spot market in the United States, which we often say in academic circles. The actual situation is that the price formed by the futures exchange is the benchmark price of spot circulation, which is just a logistics system. Due to the differences in origin and quality, both parties need to talk about a premium of futures price when trading spot, namely:
Transaction price = futures price+premium.
In other words, futures market and spot market are just a distinguishing concept in academic research. In practice, they are a whole market. Only when futures pricing and spot logistics play an organic role can the market mechanism operate normally.
In addition, futures prices are also divided into near and far month contracts. If the price of the far-month futures contract is higher than that of the near-month contract, the far-month premium of the near-month contract will increase. On the other hand, the distant moon is close to the recent month. From another angle, that is, from recent months to distant months, the same is true.
Therefore, after understanding this relationship, we can generally look at premium and discount in this way: A is the standard, and B is relative. If its value (usually expressed as price) is higher, it is a premium, and vice versa.